Bright signs can also be an indication of danger ahead

Marc Sidwell
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THERE were glimmers of optimism from the housebuilders yesterday. Bovis Homes reported its average selling price up from £180,100 in 2011 to £190,000 and its operating margin expected to be 13 per cent, up from 10 per cent in 2011. Redrow and Taylor Wimpey also both backed the picture of a sector facing tough but not immediately deteriorating conditions. Redrow saw prices up 18 per cent, and 22 per cent including London. Taylor Wimpey saw margins up both year on year and compared to the first half of 2012.

Both Redrow and Taylor Wimpey made a point of curtsying to the government’s assorted initiatives to subsidise their embattled businesses. NewBuy and FirstBuy seem to be having an impact, although funding for lending’s contribution will play out over the coming months. Reforms to ease planning laws have also helped.

The short-term benefits of state favours aside, these improving numbers seem to have been mainly driven by the firms improving their sales mix, focusing on areas of high growth in the southeast and using plots bought at low prices post-crisis.

Some are suggesting that mix of government favours and canny business decisions could see housebuilders outperform the FTSE All-Share in the fourth quarter. But the real question is how sustainable the trend is into 2013 and beyond, with the economy likely to contract again this quarter and few signs of soaring growth on the horizon.

Mortgages remain a ticking timebomb for the sector. Repossessions are at their lowest level for five years and access to lending is improving, thanks to record low interest rates and all that government assistance. But it is a temporary reprieve. When interest rates correct upwards, repossessions will rise and lending will shrink again. Housebuilders might be in for a good quarter, but it is hard to see them as a good long-term bet.

What is the opposite of a hostile takeover? Perhaps the $2.76bn (£1.74bn) merger of Jefferies and Leucadia, announced yesterday in the chummiest of terms. The outgoing chief executive of Leucadia Ian Cumming called the head of Jefferies simply Rich. Richard Handler, who will run the combined group, wasn’t to be outdone, calling Leucadia’s president, soon to be chairman of the board, Joe.

It is easy to see why Jefferies should be relaxed about the deal. It not only gets to keep its man at the head of the group, but can also continue to operate in its current form, its autonomy marked by a separate credit rating and SEC reporting company, while also enjoying the necessary funding for the bank to continue to grow.

There must be a sting in the tail somewhere, and it may lie in that abiding autonomy, which leaves open the option of Jefferies being spun out again sooner rather than later. Current shareholders of the investment bank will end up with their man at the top but only just over a third of Leucadia’s shares. If things turn unfriendly, Leucadia’s old owners will still be powerful.